Developing Management Services Organizations for Private Practices: The Newest Version of Strength in Numbers?

Stay competitive in a rapidly consolidating market by leveraging the growing prominence of MSOs in recent years.

One reason providers seek alignment with a health system is their desire to step away from all non-medical business functions and focus solely on their clinical expertise. However, when providers pursue this alternative, they may not retain the same level of autonomy they historically enjoyed as they will in their new situation as an employed or fully aligned provider. For some, independence is critical for long-term satisfaction.

Though, what about attaining strength through economies of scale? If you are looking for a way to stay in control of your independent practice while increasing efficiency, what are the options?

A management services organization (MSO) is worth significant consideration for many practices in that it offers strength in numbers, though it may not always be the answer.

An MSO is an organization that provides practice management and administrative support services to individual physicians, private practices, and medical groups. Typically, this entity is wholly owned by physicians (at least initially), with relatively minor oversight. As noted, the primary role of an MSO is to alleviate the management pressures independent providers face, but it also seeks to capitalize on economies of scale for these private practices. MSOs typically provide business services for a fee. In other cases, MSOs purchase the tangible assets (i.e., buildings, equipment, and supplies) of their client physicians. In some cases, the MSO leases these assets back to the physicians. Often, MSOs can develop group purchasing, malpractice discounts, discounted equipment leasing, shared staffing and benefits, and common EHR and billing systems.

MSOs have continued to gain prominence in recent years as the remaining private practices strive to stay competitive in an increasingly consolidated market. Thus, Coker has started proactively considering this option with our clients when evaluating alternatives to affiliation as part of their overall affiliation efforts. As a result, we have identified several positive factors associated with MSOs:

  • New revenue and income opportunities
  • Opportunity to monetize resources and assets that are currently fixed overhead
  • Ability to achieve greater economies of scale and operational efficiencies
  • Diversification of assets/investments across risk pool
  • Ability to pursue aggregation models and proactively prepare for healthcare reform requirements plus payer contracting strategies
  • Long-term investment opportunity (even after physicians retire and/or leave the practice of medicine)
  • Ability to sell the MSO to a private investor (such as an insurance company or private equity)

Where should you begin in assessing your options?

Our experience with MSOs for independent physician practices can assist you in determining whether joining with others with similar goals would be the best answer for you.

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